Supreme Court on 'bank guarantees' & 'letter of credit' !
Last updated: 10 August 2007
In a significant ruling, the Supreme Court has laid down guidelines for encashment of bank guarantee or letter of credit.
A bench comprising justice Tarun Chatterjee and justice PK Balasubramanyan said,
“We find that the following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit (LoC).
” First, banks that give such guarantees are duty-bound to honour them as per terms agreed upon between the parties concerned, irrespective of any dispute raised by its customer. In the matter of invocation of a bank guarantee or an LoC, it is not open for the bank to rely upon the terms of the underlying contract entered into between parties concerned, court said.
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